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Pensions: The Agenda for 2013

Pensions: The Agenda for 2013

Regional Capabilities:

January 16, 2013

2012 was a challenging year for pensions professionals. It
included litigation on the extent of the Pensions Regulator's (TPR)
anti-avoidance powers and where Financial Support Directions (FSDs)
sit in the order of priority on insolvency. In addition, the first
wave of employers reached their auto-enrolment staging date and
this highlighted a number of issues with the auto-enrolment
legislation.

2013 is shaping up to be as interesting and possibly even more
challenging. Not least because current economic conditions are
forecast to continue and they are likely to have an impact on
pension schemes and their sponsoring employers.

Here we consider some of the significant pensions issues that
are in store for 2013.

Auto-enrolment

By 1 November 2013 all employers with a workforce of more than
500 people will reach their auto-enrolment staging date. There will
be staging dates every month up to November 2013, depending on the
workforce size. With an estimated 6,000 employers affected and 2.7
million workers becoming eligible for auto-enrolment, many
commentators predict that pension schemes will hit capacity
constraints. Employers should plan ahead and engage with
auto-enrolment providers at least six months before reaching their
staging date.

Money purchase benefits

It is unclear whether the legislation on money purchase
benefits, hastily drafted by the DWP following Houldsworth v.
Bridge Trustees [2011] UKSC 42, will be brought into force in
2013. The proposed legislation will have retrospective effect from
1 January 1997. It will give the DWP power to make transitional
provisions in relation to past decisions that cannot practically be
revisited, for example, where a scheme has wound up. The proposed
change may have a financial impact for many employers.

GMP Equalisation

We await the Government's response to the GMP equalisation
consultation carried out in early 2012. Will the Government stand
by its previous refusal to stipulate how equalisation should be
achieved? Will the Government take the opportunity to encourage
schemes to convert GMPs into main scheme benefits and equalise the
whole benefit? Some clarity needs to be brought to the issue.

RPI/CPI/CPIH

The results of a consultation on the methodology and the
constituents of RPI were announced on 10 January. The National
Statistician recommends no change to the method used to calculate
RPI. However, as the arithmetic method used to calculate RPI does
not meet international standards, she recommended using a geometric
method. Therefore, a new RPI-based index will be published from
March 2013, known as RPIJ.

The Office of National Statistics plans to create a version of
the Consumer Prices Index that includes housing costs, to be called
CPIH. This will be introduced in March 2013. Schemes that have a
discretion or flexibility over the measure they use for pension
increases could have another measure to consider.

Priority of Financial Support Directions (FSD) on
insolvency

The Supreme Court will hear the appeal in Bloom and Others
v. The Pensions Regulator and Others [2011] EWCA Civ 1124 on
14 May 2013 to decide where FSDs sit in the order of priority on
insolvency. The Court of Appeal decided that FSDs are an expense of
the administration and rank ahead of other creditors' claims in the
administration. It remains to be seen if the Supreme Court will
change this or uphold the Court of Appeal decision.

In April 2010 the Regulator's Determinations Panel (DP) issued
Contribution Notices (CNs) against two former directors and
shareholders of Desmond & Sons. The DP decided it would not
impose CNs on two other shareholders. TPR only published the DP's
decision on 13 March 2012. The DP's decision was referred to the
Upper Tribunal and was appealed to the Court of Appeal in Northern
Ireland and heard in December 2012. The judgment is likely to be
issued in early 2013 and will be significant as the first Court of
Appeal case to consider contribution notice issues.

Despite heavy criticism of the European Commission's plan to
level the playing field between insurance companies and
occupational pension schemes, proposals for a revised IORP
Directive should be published this summer.

IBM case

The IBM case returns to the High Court in early 2013 to
decide whether changes made in a 1983 amending deed requiring
employer consent to retire at the age of 60 with no actuarial
reduction to benefits were in breach of the employer's implied duty
of good faith. Whether the employer had breached the duty of good
faith was left unresolved by the original judgment which addressed
the issue of rectification. (IBM UK Pensions Trust Limited v.
IBM UK Holdings Limited, IBM UK Limited and George Metcalfe
[2012 EWHC 2766])

TUPE

We may obtain clarity on the extent to which pension rights
transfer under TUPE. The Court of Appeal is due to hear an appeal
in Procter & Gamble v. SCA [2012] EWHC 1257 on the
scope of Beckmann rights on a TUPE transfer involving private
sector pension schemes. Under the Beckmann and Martin cases,
benefits payable on redundancy or early retirement rights
automatically transfer under TUPE. Both cases concerned public
sector pension schemes.

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